The world economy can have a big impact on the U.S.—and vice-versa. Learn how the global economy works and how events in distant countries may affect you and your finances.
There are over 7 billion people in the world across more than 200 countries, territories, and regional associations. One way to measure the world economy is to look at the gross domestic product (GDP). The World Bank measures GDP for the world as a whole. As of 2021, the world’s GDP was $96.1 trillion (in current U.S. dollars).
When measuring world economies by gross domestic product (GDP) in current, unadjusted prices, the U.S. is the largest market in the world economy. However, if you considered purchasing power parity (PPP), China would be seen as the world’s largest economy.
The world economy works through a series of economic transactions between countries. This includes international trade, currency exchange, international investing, immigration, and more. There are several agencies and organizations that help to run the world economy, including the International Monetary Fund (IMF), the World Bank, the United Nations, NATO, and more.
The U.S. economy contributes trillions of dollars to the world’s gross domestic product (GDP). In 2021, the U.S. contributed more than $22 trillion to the world’s GDP. The U.S. is a leader in international trade and investment, which has a direct impact on the global economy. If the U.S. sees economic growth, the world economy will too.
The global economy can be measured by looking at gross domestic product (GDP), consumer spending, consumption, international trade and investment, money supply, national budgets and debt, and more. These economic indicators are looked at on the individual level for each country, territory, and region, and together as a whole.
The euro is the form of money for the 19 member countries of the eurozone. It's the second-most widely used currency in foreign exchange (forex) trading after the U.S. dollar and the second-most widely held foreign exchange reserve used by central banks.
The goal of globalization is to boost economies around the world by making markets more efficient. The hope is that increased global trade will lead to more competition, which will spread wealth more equally. Those who are in favor also claim that trade across borders will help limit military conflicts.
The International Monetary Fund (IMF) is a 190-member organization that works to stabilize the global economy.
The United Nations (U.N.), headquartered in New York, is an international organization of 193 member-states. It was founded in 1945 to prevent another world war. The U.N. aims to maintain international peace. It fosters friendly relations between its members, solves international problems, promotes human rights, and harmonizes its members' actions.
The G7 Summit is the annual meeting of the Group of Seven leaders. It's hosted by the G7 president for that year. The summit doesn't have any legal or political authority. But when these seven world leaders agree on something, it has the power to shift the direction of global economic growth.
The World Bank is an international organization that helps emerging market countries to reduce poverty. Its first goal is to end extreme poverty. It wants no more than 3% of people to live on $1.90 a day or less by 2030. Its second goal is to promote shared prosperity. It wants to improve the incomes of the bottom 40% of the population in each country.
The North Atlantic Treaty Organization (NATO) is an alliance of 30 countries that border the North Atlantic Ocean. The Alliance includes the U.S, most European Union members, the United Kingdom, Canada, and Turkey.
The European Union is a unified trade and monetary body of 27 member countries. It eliminates all border controls between members. The open border allows the free flow of goods and people. There may be police checks, based on police information and experience, that are not equivalent to border checks.
On Dec. 31, 2020, the transition period for the United Kingdom (U.K.) to withdraw from the European Union (EU), otherwise known as "Brexit," officially came to an end. This marked the end of a years-long process that was overseen by two different Prime Ministers, included several delays and extensions, and left the U.K. divided.
The European debt crisis is the shorthand term for Europe’s struggle to pay the debts it has built up in recent decades. Five of the region’s countries—Greece, Ireland, Italy, Portugal, and Spain—have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it was intended to be.
Exchange rates tell you how much your currency is worth in a foreign currency. Think of it as the price being charged to purchase that currency. For example, in July 2022, 1 euro was equal to $1.0190 U.S. dollars, and $1 U.S. dollar was equal to 0.98 euros. Foreign exchange traders decide the exchange rate for most currencies. They trade currencies 24 hours a day, seven days a week.
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